The worrying truth about China’s economy – Part I

The purpose of the Deep End is to feature the very best of in-depth journalism. John Lee’s magnificent essay in the American Interestcertainly qualifies on that front – stripping away the recycled clichés of received opinion to reveal a more troubling reality. Lee’s central argument is covered in the next post (see below), but before that, let’s begin with some of his background insights.

The Chinese model is one of competitive enterprise directed by the very visible hand of government. As such it appeals to those in the west who would like to see a bigger role for the state in our own economies. However, this ignores the fact that the foundation of China’s success was built by China’s people, not its government:

“Prior to 1989 the unplanned spontaneous explosion of private initiative in rural China, [was] largely fuelled by land reform… Farmers were encouraged to make their own decisions about how to use their plot of land… A happy accident of the limited land reforms was the spontaneous rise of small-scale businesses known as Township and Village Enterprises (TVEs), mainly in rural China.”

The TVEs contributed to local budgets, so local bureaucrats were happy to cooperate with the newly empowered peasantry. Nevertheless, this wasn’t the result of some grand government plan – as even the Chinese leadership acknowledged:

“As Deng [Xiaoping] admitted in 1987, ‘the result was not anything I or any other comrades had foreseen; it just came out of nowhere.’ Employing fewer than 30 million people in 1980, TVEs were providing jobs for around 140 million by the early 1990s.”

This is where China’s new middle class came from, its army of entrepreneurs and the influx of capital that would give vital momentum to China’s industrialisation. From the present perspective of a world economy reshaped by Chinese manufacturing exports, we easily forget the foundational importance of the village enterprise revolution, but as Mr Lee reminds us…

“…80 percent of the approximately 400 million people who have been lifted out of poverty since 1979 were thus lifted in the first decade of reform (1978–89.)”

Of course, the Chinese Communist Party did make its own contribution – mainly in not unleashing yet another wave of bloody anti-capitalist repression.